Deutsche Bank sees stocks up just 3% in 2014

Deutsche Bank has set its 2014 S&P 500
target at 1,850, a gain of 3% from here. Hardly \”wow\” inspiring, compared to some recent S&P 500 calls — like Morgan Stanley\’s Adam Parker\’s 2,000-plus forecast — but Deutsche does think the next 5% move for that index will be up.

\”History suggests equities are poised for further outperformance,\” Deutsche strategists say, pointing to the fact that the rolling 10-year Treasury
return bounced in March 2009 from the lows of the Great Depression.

Among other reasons for bullishness: There are few signs equities are extended, and there is plenty of upside potential for that asset class versus bonds, outside of the fact that they\’re still cheaper.

Although $250 billion has flowed into equities this year, that is still $1.2 billion less than normal.

Stocks are also underpinned by central banks that are focused on avoiding deflation, boosting employment levels, preserving liquidity and anchoring future interest-rate expectations.

Markets are neither priced or positioned for an upturn in global growth,

Valuations are \”no more than mid-cycle for S&P and Stoxx 600
.

The market doesn\’t need to see earnings upgrades for equities to perform, corporate profits just need to meet current expectations of low double-digit growth for developed markets.

But still, Deutsche strategists appear to be putting more of their money outside than inside the U.S. In addition to their recent call for the DAX 30
to rise to 11,000 next year — a 20% upside — they see the same upside for MSCI China and a nearly equivalent rise for the Stoxx 600, along with 14% for the FTSE 100
.

But what could possibly upend their rosy predictions? A political breakdown in Europe, a disruption in monetary policy at central banks around the world, or a U.S. political impasse, the Deutsche strategists say.

As for the taper, it\’s largely priced into markets now anyway. \”Equity investors should look through near-term volatility around the event,\” the strategists say.

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